Battling Boeing threatens comeback

Saturday 24 September 2005 20.36 EDT
First published on Saturday 24 September 2005 20.36 EDT

Gustav Humbert appeared relatively unfazed by the prospect of Boeing squeezing back ahead of Airbus in the battle to win aircraft orders.

'I would not plan that this happens but this is not the end of the world.' As things stand, this is just as well: Airbus's figures show that so far this year, it has some 40 per cent of the orders for large commercial planes, while Boeing has 60 per cent.

Two things justify Humbert's phlegmatic attitude. First, as his hyperactive chief operating officer (customers) John Leahy states, this year could be the biggest ever for aircraft orders, eclipsing the previous high of 1989, when more than 1,600 planes were ordered.

Leahy, the super salesman who is credited with fuelling Airbus's sales success of the past two years, says: 'There are 1,046 firm orders so far: Boeing has 629 planes, roughly 60 per cent, Airbus has 417. But there is still a quarter of the year left, and Airbus has yet to book more than 100 planes as firm orders.'

While volumes are high, leadership in market share may just be a sign of corporate vanity. Humbert hints so, saying 'profitability is more important than 1-2 per cent of market share'. But if orders slump, as they did to 396 within two years of the 1989 high, both manufacturers will be scrapping for every deal.

Leahy points out that this year is likely to be the top of the cycle - the long-run average for orders is between 800 and 850. While Airbus expects deliveries to keep rising for at least another two years - from 370 this year to 400 next and above that in 2007 - orders are likely to fall, and Humbert himself predicts a delivery slowdown towards 2010.

The interest this year has been spearheaded by demand from low-cost carriers, the rising oil price, and the arrival of new products.

So which of the two carriers has the right planes to deliver both sales and profits in the future? This is the second thing that justifies Humbert's attitude - Airbus has grabbed much hype in recent years with its A380. Could that change?

It may be changing now. The interest this year has been driven by 250- to 300-seat, long range (8,800-mile) fuel-efficient designs. Boeing launched its new 787 Dreamliner two years ago, while Airbus has spent the last year marketing its response, the A350.

Boeing so far has 257 orders and commitments for its 787. Leahy says he has 140 commitments, which he has yet to book as firm orders. This will increase Airbus's total to about 560. He believes he can add another 60 or so to this by the end of the year. Leahy also believes the current 60/40 split will have swung Airbus's way by the end of the year. He says it will be around 50/50 by then.

He naturally says his plane is better, carrying more people more cheaply further and with less noise than the 787. With the A350 based on the existing A330, and with a relatively low development cost, significant inroads into the market will be financially beneficial for Airbus. Time will tell who wins the sales battle but analysts remain unconvinced that the A350 will match the 787.

Airbus's A350 move was a reaction to the 787, which sold more successfully than the top brass in Toulouse expected. Its attention was on the €12bn A380. This is where Airbus has made its biggest bet. There are already cost overruns - totalling €1.45bn - plus a rumoured €60m in penalties for late delivery.

The bigger question is over orders. Of the 159 A380s to date, only 10 have come in the past year - five to China Southern Airlines and five to the start-up Indian Kingfisher Airlines. This may just be a hiatus while glitches are ironed out.

But Boeing is not sitting on its hands - it plans to offer airlines a higher capacity 747 with improved efficiency - a similar upgrading tactic to the A350, giving market access without massive start-up costs. Players that fly 747s, such as BA and the Japanese carriers, are delighted and may well stay with Boeing.

Humbert may say he is not concerned about outselling Boeing, he is more concerned with profit. But Airbus has been forced to cover itself in the mid-market that it downplayed while developing the A380 and where Boeing has built up momentum. Likewise, there are concerns over the size of the market for large planes. Boeing is also covering itself there, for a fraction of the cost of developing the A380. If the A350 and A380 turn out to perform below expectations, Airbus's dominance could prove to have been an all too brief spell of glory.